US stocks extended their losses as the financial sector struggled in an afternoon of weak trading
As US Federal Reserve chairman Ben Bernanke urged banks to write down mortgage debt, analysts cut earnings forecasts for Citigroup and Goldman Sachs.
Citigroup's shares were down by nearly 7%, while Goldman lost 1.5%.
Bank of America joined the two investment banks in decline, falling by 3.19%.
Together the banks drove financial shares to their lowest since August 2003.
John Dugan, the comptroller of the currency, told the Senate this afternoon that US banks should prepare for rising bad debts from credit cards and home loans in addition to sub prime mortgages.
The Dow Jones industrial average was down 1.2% or 144 points to 12,115.4 by the time of the London market close. The S&P 500 index was also down by 1% or 13.3 points to 1,317.97.
Meanwhile, Intel, the world's largest computer chip maker, slumped after it said that the lower prices for some of its memory chips could hurt profits. Shares fell 1% to $19.82.
The news added to worries about growth in the technology sector and fanned fears about business spending amid the slump in the US housing market and deepening recession.
The FTSE 100 closed down 0.87% or 51 points at 5767.7.
